- July natural gas softens on near-record production, cooler weather outlooks for late July
- Technical indicators point to substantial price decline once near-term heat subsides
- Early estimates point to storage injection that would be in line with five-year average
- Spot gas prices mixed as heat returns to the U.S. South
July natural gas prices ended the day not far from where they started, settling 2.2 cents lower at $2.923 Monday as production appears on track to keep posting records despite some lingering restrictions as maintenance season comes to a close. Spot gas prices were mixed, with several pricing points putting up gains or losses of less than a dime. The NGI National Spot Gas Average climbed 4 cents to $2.54.
The Nymex July gas futures contract started the day in the red and traded in a tight 5-cent band throughout the session. The losses occurred as Lower 48 production hit a fresh record on Sunday before easing slightly for Monday. Genscape Inc. estimated that production reached 79.96 Bcf/d on Sunday before slipping 0.3 Bcf/d day/day for Monday. Despite the dip, volumes remain more than 1 Bcf/d higher than last week’s volumes.
Volumes for the past two days compared to last week’s averages have showed the largest gains in the Permian Basin (up 0.37 Bcf/d), non-Permian Texas (up 0.33 Bcf/d), Rockies (up 0.29 Bcf/d) and Gulf Coast (up 0.28 Bcf/d).
This brings daily Lower 48 volumes almost exactly in line with Gensape’s production forecast for July, “which had been above actuals for a period due to the extension of normal shoulder-season maintenance into the summer,” Genscape senior natural gas analyst Rick Margolin said.
On the demand side, another round of hotter-than-normal weather was expected to lift power burns into the weekly average range around 36 Bcf/d, about 5 Bcf/d higher than last week’s average burns. Lower 48 population gas-weighted degree days (GWDD) are forecast to come in about 25% hotter than normal for this time of year, with the greatest departures forecast for New England and Midwest/Midwest Independent System Operator markets, Genscape said.
The midday Global Forecasting System weather model, however, was a touch cooler overall to lose a few GWDDs, although remained quite hot across most of the country for the next two weeks due to strong and widespread upper high pressure dominating, according to NatGasWeather. The hottest period continues be focused around June 29-July 4 as the core of the heat dome sets up over the eastern half of the country, resulting in widespread high temperatures in the 90s to 100s, including from Chicago to New York City.
“We continue to expect the core of the hot ridge will shift over the Southwest and Plains July 6-8, easing hot conditions over the East but still very warm,” NatGasWeather said. Overall, the forecaster said weather patterns were still bullish, especially June 29-July 5 across the Midwest and East due to highs in the mid-90s, which were aided by hot and humid conditions across the central and southern United States.
Meanwhile, the Nymex July futures contract rolls off the board on Wednesday, which could lead to some volatility in the market given the extreme heat currently in the forecast. Once August takes over the prompt-month position, however, the market appears ripe for a dramatic slide as seasonal technical indicators come into play, Bespoke Weather Services said.
“The technical picture for gas prices is not particularly strong as seasonality indicates significant bearish risks moving through the remaining balance of the summer, and the strip shows production growth will allow for sizable downside once weather eases,” Bespoke chief meteorologist Jacob Meisel said.
Meanwhile, the July contract’s expiry will occur the day before the Energy Information Administration (EIA) releases its weekly storage report. After a 91 Bcf build into inventories for the week ending June 15, stocks sat at 2,004 Bcf, which is still 757 Bcf below year-ago levels and 499 Bcf below the five-year average of 2,503 Bcf.
Early estimates for this coming Thursday’s EIA storage report (for the week ending June 22) are in the upper 60s to mid-70s Bcf, which is near the five-year average of a 72 Bcf injection. Bespoke noted that EIA data each of these last two Thursdays has missed solidly to the bearish side as the market has injected more gas into storage than expected. “This has come as power burns were not particularly tight and storage concerns have eased even in the face of very intense heat,” Meisel said.
Bespoke is looking for a tighter injection this week as burns tightened during the reporting week and early indications are that production growth may have been temporarily overdone. “With storage levels still far below average, any week-over-week tightening in EIA data would be a cause for concerns should hot forecasts be able to hold,” Meisel said.
Spot Gas Prices Mixed as Heat Returns to South
Spot gas prices were mixed Monday as hot weather returned to the southern United States after several days of rain last week. As far as details, several weather systems are expected to impact the northern United States during the next couple days making for comfortable conditions and light demand, according to NatGasWeather. The storms come as the southern part of the country will be hot as high pressure expands, giving way to daytime highs in the 90s and 100s.
“Late this week through next week (June 28-July 5) is when the ridge becomes focused over the eastern half of the country and where hotter trends have shown up, as highs in the 90s impact major Midwest and Northeast cities for locally very strong demand,” the weather forecaster said.
The potential remains, however, for the hot dome of high pressure to shift over the west-central United States during the second week of July, allowing heat to abate over the East. “It would still be warmer than normal over most of the country, just with a little less impressive heat over the East,” NatGasWeather said.
In California, next-day gas prices were mixed. SoCal Citygate jumped more than $1 to $3.66, while PG&E Citygate tumbled 15 cents to $2.91. Malin was down a dime to $1.81.
Spot gas prices in Texas and Louisiana also declined. Katy next-day gas traded at $2.99, down 3 cents on the day. At Texas Eastern S. Texas, spot gas also shed 3 cents to reach $2.96. Meanwhile, Transwestern shed a nickel to reach $1.75 as volumes on the Transwestern Pipeline recovered following a second force majeure declared this month affecting Transwestern’s WT-1 station in the New Mexico Permian Basin. The most recent force majeure was in place only for the first four cycles of Sunday’s (June 24) gas day. It reduced operating capacity at the WT-1 meter from 612 MMcf/d to 534 MMcf/d, according to Genscape.
The same operating capacity limit was in place for the June 12 gas day, also due to a force majeure. Prior to June 24, the previous 30-day average scheduled cap (excluding the earlier force majeure) was exactly 534 MMcf/d. Sunday’s event resulted in a 34 MMcf/d day/day drop in flows, Genscape natural gas analyst Joe Bernardi said.
Prices strengthened in the country’s midsection, with spot gas NGPL-Midcontinent climbing 23 cents to $2.20 and Panhandle Eastern edging up 4 cents to $2.01. Chicago Citygate and Consumers Energy shifted a mere penny in either direction.
Meanwhile, Genscape said that although Natural Gas Pipeline Co. of America lifted the force majeure on segment 11 in Kansas on Saturday, flows had not yet rebounded. The force majeure was put in effect on June 14 and restricted operational capacity through Segment 11 to 580 MMcf/d from 1,100 MMcf/d.
Segment 11 runs from Kansas’ southern to northern borders. The restriction was lifted effective for the evening cycle nominations on June 24, however nominations for the June 25 gas day only increased 43 MMcf/d day/day, to 465 MMcf/d on June 25 from 422 MMcf/d on June 24, still about 0.5 Bcf/d below pre-event levels, Genscape natural gas analyst Vanessa Witte said.
Over in Appalachia, next-day gas prices were mixed, with Dominion South jumping 10 cents to $2.29 and Tennessee zone 4 200L sliding a nickel to $2.52.
Eastern pricing locations were similarly a mixed bag as Algonquin Citygate shot up nearly 15 cents to $2.55, while Transco zone 6 non-NY fell 4 cents to $2.70.